Public Support for Work Integration Social Enterprises (WISEs) in Spain. Some Lessons for More Productive Support.

31 Dec 2013

Author(s): Blanca Miedes Ugarte
Manuela A. Fernández Borrero

This is part of a series of think pieces by scholars and practitioners working on a broad range of issues within the field of Social and Solidarity Economy. The series is being published in conjunction with the UNRISD conference “Potential and Limits of Social and Solidarity Economy”. The conference took place on 6-8 May 2013 in collaboration with the International Labour Organization and the UN Non-Governmental Liaison Service.

Work Integration Social Enterprises (WISEs) aim to integrate people at risk of permanent exclusion from the labour market into work and society through a productive activity. In Spain, despite the fact that national law establishes a common regulatory framework, recognition and support of WISEs is the responsibility of each Autonomous Regional Government. As a consequence, today there are 12 systems of public support for WISEs in the country. This striking diversity allows us to compare the outcomes of the different models and to study their efficiency. The analysis of the most recent data (2011) shows that there is a clear correlation between the amount of aid received by WISEs and the quantity of integration jobs they generate. However, the return on public investment varies greatly from one region to another, even when the regions are socio-economically similar. This points to the importance of specific institutional factors in each territory as well as the type of public aid.

Blanca Miedes is Associate Professor of Applied Economics and director of the International Research Centre on Territorial Intelligence (C3IT) at Huelva University, Spain. She started the first Regional Observatory of WISEs in Andalusia (Spain) in 2003Manuela A. Fernández is Lecturer in Social Work at Huelva University, Spain and research fellow at the C3IT.

Spanish WISEs

In the framework of Social and Solidarity Economy, the main objective of Work Integration Social Enterprises (WISEs) is to help poorly qualified and unemployed people who are at risk of permanent exclusion from the labour market to integrate into work and society through a productive activity. These social firms try to provide decent income and working conditions and at the same time offer people social connectedness and meaningful activities, thus achieving some social goals like social belonging or inclusion (Defourny & Nyssens, 2012). In Spain, the first WISEs were created in the 1980s; however, they were not regulated until 2007 with the National Act of Regulation of WISEs (Ley 44/2007, 13 December).

Same country, same definition, same global regulatory framework

Until the sector was regulated in 2007, the term WISE referred to very different kinds of organization, but today the law defines WISEs as “legally constituted commercial or cooperative societies, duly qualified by the competent regional bodies, performing any economic activity of production of goods and services, whose social objectives are the integration and socio-labour training of persons in a situation of social exclusion as a transit to regular employment". In all cases, these enterprises must be principally non-profit entities.

The National Act includes measures to promote WISEs such as:

funding for the creation and development of new firms;

support for the recruitment of workers who are socially excluded;

subsidies that could offset the labour productivity gap;

funding to follow-up workers as they transit to conventional firms or employment.

But a different specific regulatory framework and support system by region

In the European Union the regulation and support of WISEs is framed in the field of Active Employment Policies. In the decentralized Spanish state these policies are the responsibility of each of the seventeen Autonomous Regional Governments (Comunidades Autónomas). Thus, although national law establishes a common regulatory framework, recognition and support of WISEs is the responsibility of regional government authorities. As a consequence, today there are twelve systems of public support for WISEs in the country (five regional governments have not regulated the sector yet).

These systems are very different with regards to the nature and level of funding they provide. This diversity is an aberration in terms of social and territorial cohesion. However, from the point of view of research, it has the advantage of allowing us to compare the outcomes of the different models and to study the relationship between the funding received and the performance of WISEs.

A very wide range of outcomes

We begin our analysis by using data provided by the latest Annual Report of FAEDEI (Spanish Federation of Entrepreneurial Associations) on WISEs. This report gathers data by region for 2011 such as the number of WISEs, the number of workers that have been integrated, turnover by firm, total public aid received for each integration job, the amount of taxes paid by each company (VAT, on corporate profits, on personal income, social security contributions and so forth).

The first thing that stands out is that although there is a clear correlation between the amount of aid received and the quantity of inclusion jobs generated by WISEs (see Table 1), not all public investment generates the same level of success.

It could be argued that these differences are due to large regional socio-economic disparities. However, if we take two regions with similar socio-economic characteristics, the Basque Country (País Vasco) and Catalonia (Cataluña), we can observe that both generate a similar number of full time equivalent integration jobs (hereinafter FTEIJ), but while Catalonia invests €9.869,09 for each FTEIJ, the Basque Country invests more than twice that figure (€19.599,41). This difference cannot be explained by prices or income factors. It is rather the result of varying levels of political will in support of WISEs. In both regions the types of public investments are very similar, characterized by funding for follow-up workers and subsidies to offset the labour productivity gap. In 2012, however, while the Basque Country provided a flat rate of €12.300 per worker per year (and a bonus of five per cent to female workers), covering a large part of workers’ annual wages, in Catalonia this support for reducing the productivity gap was set at a maximum of 60 per cent of social security expenditure (implying no more than €3000 per worker per year).

If we disregard the three regions that have invested comparatively more in WISEs, that is the Basque Country, Catalonia and Navarra, we can see that the higher the funding, the more jobs are created, except for Andalusia, which is able to generate a greater number of jobs with much lower public funding. The opposite case is the Canary Region that needs to invest much more for each generated FTEIJ. Interestingly, again, prices or income factors cannot be claimed to explain this difference as these two regions are socially and economically quite similar.

An often-cited benefit of public investment in WISEs is that as they are companies operating in the formal economy which generate turnover and wages so that they return to the state part of their funding when they and their workers pay in taxes.1 The higher the wages and the higher the added value generated, the higher the economic return from WISEs to the state will be. Using data from the FAEDEI Annual Report, the difference between the public funding and the economic return for each full time equivalent integration job (FTEIJ) can be calculated. Again the results are not conclusive. High funding is not necessarily correlated with more tax return ( 2).

Moreover, it seems that much more public investment for each FTEIJ implies less tax return. In other words, the higher the public aid, the more subsidized employment there is.

“How” is as important as “how much”

What also becomes clear, however, when analysing the Spanish WISEs sector is that these organizations are effective instruments for labour integration. The data in the FAEDEI Annual Report 2011 show that 52 per cent of workers in integration processes in WISEs find a place in the regular labour market.

Furthermore, several studies carried out by the authors in collaboration with Andalusian WISEs show that these social enterprises provide, in addition to income, specialized professional training, health services, counselling and coaching, help with housing problems, and, what is more important, a sense of purpose to their workers. There is no doubt that WISEs are very useful and effective social integrative tools.

Therefore, the question for governments should not be whether to finance or not, but how to do it in a way that public investment is as efficient as possible. The data analysis clearly indicates that the more funding, the more jobs are generated. However, the institutional framework in which the public support takes place, as well as the form taken by such public aid, is equally relevant.

Indeed, the analysis of the different legal frameworks defining the regional public support systems shows that the most efficient systems of public support have found a good balance between the following elements:

direct financial assistance to enterprises;

support for business associations of WISEs for their social, economic, and political promotion (through the dissemination of their activities, networking and public and private partnerships and social marketing, for example), and

measures such as reserved markets or inclusion of social clauses in public procurement mechanisms.

These more balanced formulas, as in the Aragon Region for example, seem to offer better results in terms of number of jobs and economic return. However, although this is an important finding, the question is how to achieve such balance in the specific institutional and socio-economic circumstances of each territory. The improvised Spanish laboratory is a good field to develop action-research projects to further evaluate the results of WISEs in different contexts. Moving along this path would undoubtedly help to define better support frameworks.

FOOTNOTES1There are other factors that contribute to the return on public investment. These include a reduction in the collection of unemployment benefits by previously unemployed people who, as a result of the relevant policy, are now employed in WISEs. For instance, the Social Report 2009-2010 published by the Andalusian WISEs Association (Eida) estimated savings of €1.618.933,32 in unemployment benefits no longer collected by their 263 workers at risk of social exclusion. At the same time their contribution in terms of taxes (VAT excluded) was estimated to be €3.521.508,36. Unfortunately there is no other regional data available on this topic. See more details on the Andalusian report at http://www.c3it.uhu.es/index.php?option=com_zoo&task=item&item_id=63&Itemid=161.